Tuesday, January 31, 2012

Hedge Funds May Sue Greece if It Tries to Force Loss - (www.nytimes.com) Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greecein a human rights court to make good on its bond payments. The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts. The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.

Kodak Files for Bankruptcy Protection - (www.bloomberg.com) Eastman Kodak Co. (EK), the photography pioneer that introduced the Brownie Camera more than a century ago, filed for bankruptcy after consumers embraced digital cameras, a technology Kodak invented and failed to commercialize. The Rochester, New York-based company, which traces its roots to 1880, listed assets of $5.1 billion and debt of $6.8 billion in Chapter 11 documents filed in U.S. Bankruptcy Court in Manhattan. “They were a company stuck in time,” said Robert Burley, an associate professor at Toronto’s Ryerson University who has photographed shuttered Kodak facilities in the U.S., Canada and France since 2005. “Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability.”

Who Is Being Rescued -- It ain't you or me: It's bondholders - (www.ritholtz.com) Never forget exactly who is being rescued by Central Bank/Political bailouts! Here’s a hint: It ain’t you or me: “…it is important to remember that the attempt to rescue distressed European debt by imposing heavy austerity on European people is largely driven by the desire to rescue bank bondholders from losses. Had banks not taken on spectacular amounts of leverage (encouraged by a misguided regulatory environment that required zero capital to be held against sovereign debt), European budget imbalances would have bit far sooner, and would have provoked corrective action years ago. The global economy has not been well-served by the financial companies that leaders are trying so desperately to protect. Our vote is for receivership and restructuring so that losses can be taken by those who willingly accepted the risk of loss, and the legacy of bad investments and poor capital allocation doesn’t have to be converted into a future of suppressed economic growth.” (emphasis added)

Monday, January 30, 2012

Housings potential 'Death Spiral' - (money.cnn.com) Goodman often pauses several seconds before speaking, choosing her words deliberately. So it is especially distressing to hear her warn of a potential housing "death spiral." On top of the 2.5 million homes that have already fallen to foreclosure since the bubble burst, another 4.5 million mortgage holders have given up paying and are likely to lose their homes, she calculates. Millions more are underwater -- owing more than their home is worth -- and may give up if things don't improve soon. All told, Goodman warns that more than 10 million of the nation's 55 million mortgage holders could default by 2018. If home prices fall much more than the 6% or so she's projecting over the next 12 to 18 months, the picture worsens, as more foreclosures drive prices down further, in turn causing more sheriffs' sales. Goodman's research into who defaults shows that many governmental and private efforts at saving borrowers -- and reducing investors' losses -- by modifying mortgages weren't helping because they only extended payments or reduced interest rates. They didn't fix the fundamental problem of unsupportable debt loads.

Inside the Fed in 2006: A Coming Crisis and Banter - (www.nytimes.com) As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers. The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was “rising through the roof.” But the officials, meeting every six weeks to discuss the health of the nation’s economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast. “We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006.

Eurozone's 'big bazooka' bail-out fund is left in tatters by S&P downgrade - (www.telegraph.co.uk) Plans for a €1 trillion "big bazooka" to stem the debt crisis were crushed on Monday night as Standard & Poor's stripped the European Financial Stability Fund (EFSF) of its AAA credit rating. The EFSF, which is tasked with supporting indebted countries, was itself hobbled as S&P gave it a AA+ rating, reflecting the downgrade of France and eight other eurozone countries on Friday. As the standoff with Greece's creditors continued, Mario Monti, the Italian prime minister, pleaded for Germany and other creditor countries to help lower his country’s borrowing costs. He warned there would be a “powerful backlash” among voters in smaller EU countries if they did not. S&P said the EFSF's rating would be cut again if member states' creditworthiness eroded further.

Wall Street justice system is a kangaroo court - (www.bloomberg.com) Probably unbeknownst to the millions of people who interact with Wall Street every day -- either as brokerage customers or as employees of Wall Street firms -- there is a price of admission to this world tucked deep inside the boilerplate documents that one must sign to open an account or to get hired. This catch is a nonnegotiable agreement for when disputes arise, say, about a bonus promised but not paid, or about a rogue broker who sticks his client’s money in a synthetic collateralized debt obligation that goes bust. Under the deal, the only venue to litigate the claim is a mediation or arbitration process overseen and administered by the Financial Industry Regulatory Authority, Wall Street’s powerful self- regulatory organization. Finra oversees some 4,460 brokerage firms and 630,000 registered representatives, mostly brokers, traders and bankers. By signing the initial agreements -- and if you don’t, you can forget about working on Wall Street or having a brokerage account with a Wall Street firm -- you agree not to pursue any future monetary claim against Wall Street in the U.S. court system.

Greece Looks More And More Like A Collapsed Society – (www.businessinsider.com) I spoke with someone from Athens today. It's not a pretty picture. Issues related to subsistence have replaced the fervor for demonstrations. This may not last according to this resident. The closing of stores and shops is escalating. Apparently, 20% of all retail establishments are shuttered. Nearly every block has one reminder of the ongoing depression in the economy. The Greek Diaspora is in full swing. People are leaving the country, old and young alike. They are going to Europe, where the prospects of jobs stink, but not as badly at Greece. They are also fleeing to America (family members in the US have been helping out), Australia (where some are welcome) and South America. The talk is that the Greeks are becoming the new Palestinians. They leave their homes, as there is no future there, but all the time they wish they never left.

Sunday, January 29, 2012

Irish Occupation of Empty Offices Escalates Fight Over Boom-to-Bust Legacy - (www.bloomberg.com) A new front in the battle for Ireland’s empty properties has opened up. Before dawn on Christmas Day, activists took control of an unfinished six-story glass-fronted building in the city of Cork called Stapleton House. Instead of using the 25,000 square feet (2,300 square meters) for offices and stores, they plan to create a cafe, creche, library and music school for community groups. They already hosted a ceili, a traditional Irish dance. “We are taking it back for the people of Cork,” Liam Mullaney, a 35-year-old spokesman for the group of about a dozen protesters that seized the government-controlled building, said in an interview at the site. “It belongs to the taxpayers.” Mullaney and his group are putting an Irish twist on the Occupy Wall Street movement, which began in New York and has spread to cities around the world, and highlighting Ireland’s record number of empty properties, or so-called ghost estates and orphan sites.

Spain Offers Aid to Cash-Starved Regions - (www.bloomberg.com) Spain’s central government will provide a credit line and other liquidity measures to ease pressure on cash-strapped regions while demanding tighter deficits in return, Budget Minister Cristobal Montoro said. The central government in the coming weeks will pay the regions an 8 billion-euro ($10 billion) transfer that had initially been scheduled for July, Montoro told radio station Cadena Ser in an interview today. It will also offer loans via the Official Credit Institute to help regions settle bills for suppliers in a couple of months, he said. “We are submitting these mechanisms on the condition that the regions present fiscally viable plans,” said Montoro. He first announced the measures yesterday after meeting with regional finance chiefs following a pledge by Prime Minister Mariano Rajoy to “rescue” regions with liquidity problems.

Hungary faces ruin as EU loses patience - (www.telegraph.co.uk) The European Commission has launched legal action against Hungary's Fidesz government for violations of European Union treaty law and erosion of democracy, marking a dramatic escalation in the war of words with the EU's enfant terrible. Hungary's defiant premier Viktor Orbán has no hope of securing vital funding from the EU and the International Monetary Fund until the dispute is resolved, leaving him a stark choice of either bowing to EU demands or letting his country slide into bankruptcy. Yields on Hungary's two-year debt jumped to 9.17pc on Tuesday, an unsustainable level for an economy in recession with public debt of near 80pc of GDP. Hungary's debt was cut to junk status by rating agencies last week. Capital Economics said Hungary must repay €5.9bn (£4.9bn) in EU-IMF loans and raise external funds equal to 18pc of GDP this year, the highest in Eastern Europe. Two-thirds of household debt is in Swiss francs, leading to a lethal currency mismatch as capital flight weakens the forint.

The euro is pushing Italy into depression - (www.telegraph.co.uk) Here is the latest money supply chart from the Banca d'Italia. Just look at M3. Horrendous. See page 7 of this report. This speaks for itself. There is no clearer indictment of the dysfunctional nature of monetary union. Italy is being pushed into depression. Criminal. Obviously, Italy and Germany can no longer share the same monetary policy. Ergo, Germany should leave EMU, pronto. The Banca said Italy's economy contracted by 0.5pc in the last quarter of 2011. It will shrink by a further 1.5pc this year, with no growth in 2013. This is a direct result of the misguided pro-cyclical austerity polices imposed by Angela Merkel and the ECB – the infamous Trichet letter – without offsetting monetary and exchange stimulus.

Thursday, January 26, 2012

A Nightmare Home Appraisal Story That Shows Why The Housing Market Is Still So Messed Up - (www.businessinsider.com) My senior staff appraiser shared the following nightmare story – about a friend of his who is going through a mortgage refinance with one of the big US national banks regarding a house in Long Island, NY. Rather not say the bank name but a stagecoach comes to mind. An appraisal was ordered through a big appraisal management company – Rels. Their appraiser used a condemned house with a big hole in the side of it – visible from the street – as a comparable sale presented in the report: Attached are the photos of the condemned house used by the appraiser in my friends appraisal…They are still fighting to have a new appraisal done. I will be honest the house was not this bad (when it was sold) as most of the siding has been removed. However, it was bought by a developer/LLC (not a person) and the condemned sign was on the door had the appraiser gotten out of the car. The hole in the side I believe was there as you can see that is the side with some siding still remaining.

MF Global Probe Focuses on Back Office - (online.wsj.com) Investigators on the hunt for an estimated $1.2 billion in customer money missing since MF Global Holdings Ltd. collapsed are zeroing in on the securities firm's back-office operations in Chicago, people familiar with the situation said. One back-office employee has told people she disputes congressional testimony by Jon S. Corzine, MF Global's former chairman and chief executive, that she provided assurance that a $200 million transfer was proper, according to people familiar with the matter.

Overnight deposits at ECB top half a trillion euros - (www.reuters.com) Commercial banks parked over half a trillion euros at the European Central Bank, the highest on record, as the mix of debt crisis worries and a recent giant injection of ECB cash left banks awash with money but too scared to lend it. Overnight deposits at the ECB have been hitting new records even since last month's first ever offering of three-year loans from the ECB pumped 490 billion euros ($620 billion) into the banking system. ECB data on Tuesday showed deposits topped the half a trillion mark for the first time ever, as banks parked a staggering 502 billion euros, up from the 493 billion euros the previous day. It is likely to mark at least a temporary peak in the level of hoarding.

Greeks strike against austerity as EU, IMF visit - (www.reuters.com) But ordinary Greeks, who have been hit hard by tax hikes and spending cuts which were part of a first bailout agreed in 2010, fear more austerity and wage cuts with the second bailout and say they cannot take more belt-tightening. Thousands of angry Greek workers marched to parliament to protest against the lenders' visit, waving banners reading "EU, IMF out!." "We want them to get lost. They are pushing the country towards collapse with these measures. They are selling off Greece," said Yannis Tsalimoglou, a 51-year old dockworker, whose income has taken a 30-percent hit with the crisis. Greece has entered its fifth consecutive year of austerity-fuelled recession, with unemployment reaching a record high of 17.7 percent in the third quarter of 2011.

How Ireland's Richest Man Went From $6 Billion To -$3.5 Billion - (www.businessinsider.com) Sean Quinn, once Ireland’s richest man, was declared bankrupt on Monday, Bloomberg reported. Quinn, whose fortune was valued at around $6 billion (4.7 billion euros) by Forbes magazine in 2008, owes the bank almost 2.9 billion euros ($3.5 billion). Quinn, 64, didn’t contest the bankruptcy petition brought by Irish Bank Resolution Corp. (IBRC), formerly Anglo Irish Bank, the lender at the center of Ireland's property crash. Here's how it happened... Quinn started in construction, and went on to become a real estate magnate. However, his trouble came when he became involved with the Anglo Irish Bank Corp.

Wednesday, January 25, 2012

Impending FHA bailout to be justified by "saving banks" - (www.ochousingnews.com) The FHA has been the lender of last resort during the collapse of the housing bubble. Conventional lending dried up once they realized how lax lending standards became, and how likely it was that borrowers would strategically default and cause more losses. Without the FHA, a Las Vegas style crash of 70% or more would have been common to markets across the country. The banks would have been obliterated. The FHA insured many of the loans issued as prices declined. Since the FHA down payment is only 3.5%, and since it takes a 6% commission plus closing costs to exit a property, nearly every FHA loan issued over the last 10 years is effectively underwater. The losses are going to be enormous. The use of the FHA as the lender of last resort will be justified as a necessary act to save the banks. That’s bullshit. The FHA probably did save many of our too-big-to-fail banks, but this was not necessary. We could have let them fail, nationalized them, and recapitalized them with government money later to be sold at a profit. The government basically did this with Citi buying a huge amount of stock at $3 and selling it at $4 after it stabilized. The government took over the GSEs and assumed their liabilities. They currently own most of their worthless stock, but at some point, they may spin these off and recoup some of the losses on stock sales. The FHA has no such resale option.

Shadow inventory estimated to be at 9.8 million. Oh dear. - (www.nakedcapitalism.com) “Shadow inventory,” the number of homes that are either in foreclosure or are likely to end up in foreclosure, creates substantial but hidden pressure on housing prices and potential losses to banks and investors. This is a critical figure for policymakers and financial services industry executives, since if the number is manageable, that means waiting for the market to digest the overhang might not be such a terrible option. But if shadow inventory is large, housing prices have a good bit further to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy. Yet estimates of shadow inventory, and even the definition of what constitutes shadow inventory property, vary widely. For example, the Wall Street Journal published a Nov. 11, 2011 article, “How Many Homes Are In Trouble?” where values varied from 1.6 million (CoreLogic), to “about 3 million” (Barclays Capital), to 4 million (LPS Applied Analytic), to 4.3 million (Capital Economics), to LPS Applied Analytics, to between 8.2 million and 10.3 million (Laurie Goodman, Amherst Securities).

Senators Say Fed Overstepped Its Role With Advice on Housing - (www.bloomberg.com) Republican Senators Orrin Hatch of Utah and Bob Corker ofTennessee criticized the Federal Reserve for overstepping its role by making policy recommendations on how the U.S. government should try new ways to spur the housing market. Hatch, the top-ranking Republican on the Senate Finance Committee, said the housing study sent by Chairman Ben S. Bernanke to Congress last week, along with recent Fed speeches, “intrudes too far into fiscal policy advice and advocacy.” Corker said New York Fed President William C. Dudley’s suggestion last week that Fannie Mae and Freddie Mac reduce the principal of the loans they guarantee was “absolutely egregious.” Fed officials have been increasing their calls for government measures to boost the housing market after record-low interest rates failed to revive borrowing. Bernanke last week sent lawmakers a staff study discussing policy options to help boost the housing market that said Fannie Mae and Freddie Mac might have to bear greater losses to stoke a broader recovery.

Americans Gorge on Credit Card Offers - (www.timiacono.com) It would appear that the Federal Reserve’s guarantee of freakishly low interest rates until at least 2013 (soon to be extended into 2014 or beyond) and the resulting push by credit card companies to clog mail boxes with all sorts or tempting offers had the desired effect on Americans as they racked up new credit card debt in November at a rate not seen since before the wheels fell of the global financial system back in early-2008. The data for December might be even more impressive since, what U.S. citizen in their right mind wouldn’t borrow a thousand dollars or two to get that big flat screen TV and new sound system at Christmas time if they could do so without incurring any interest charges and making only minimal payments for the next year or two. While some say this indicates renewed confidence in the U.S. economy – one where 70 percent of all activity is based on consumer spending - others think this is akin to a drunk “falling of the wagon” after almost three years of sobriety.

The due-on-sale time bomb: be aware and ready - (www.firsttuesdayjournal.com) Thus, while the housing market lingers in the purgatory of low interest rates and low prices, waiting for interest rates to begin their inevitable rise, there exists a due-on time bomb ticking silently just below the surface of real estate sales volume numbers. The bomb will not explode all at once but in slow motion, as rates will rise gradually with creeping inflation and as the employment rate picks up. This calculus is well-known to brokers who arranged sales during the high interest rate period of 1977 to 1982, a period during which the due-on clause was held at bay by the courts and the strong-arm sheriff – until deregulation let the bears of Wall Street roam at will and build strength, gorging themselves on profits for the last 30 years. However, once those who have been lucky enough to secure a mortgage at today’s low rates are ready to sell and interest rates have begun to rise (likely during a 2016-forward real estate boomlet), prospective buyers everywhere will be asking the same question that most did in the late ‘70s and early ‘80s: how can I assume the seller’s low-rate loan? At that moment, real estate brokers and agents will have to take the opportunity to educate their client buyers and sellers about the due-on-sale clause included in every trust deed.

Tuesday, January 24, 2012

Plans for high-speed rail are slowing down - (www.washingtonpost.com) Critics began panning the first leg of California’s futuristic high-speed rail network as a “train to nowhere” soon after officials decided to build it not in the major population centers of Los Angeles or San Francisco, but through the state’s Central Valley farming belt. Since then, things have only gotten worse. Spiraling cost estimates and eroding political and public support now threaten a project crucial to a 21st-century vision of train travel that President Obama promised would transform U.S. transportation much as interstate highways did more than a half-century ago. A national high-speed rail network would not only support tens of thousands of construction and manufacturing jobs, but it would get Americans out of their cars, revitalize struggling downtowns, and spare the environment millions of tons of carbon emissions and travelers untold hours wasted in traffic or in airport terminals waiting out delays.

Record ECB deposits show stress in banking system - (finance.yahoo.com) Banks deposited a record euro493.3 billion ($630 billion) at the European Central Bank on Friday night in a sign the eurozone banks remain concerned over a government debt crisis. The overnight figures released Monday exceed the previous record of euro490 billion deposited on Thursday. Banks are awash with ready cash thanks to euro489 billion in low interest crisis loans handed out to 523 banks by the ECB in late December. But many are afraid to lend the money to another bank for fear they won't get paid back. Banks face potential losses on government bonds issued by countries with heavy debt levels. Some banks are also believed to be hoarding the ECB loan money to pay off their own bonds maturing this year because they can't issue new bonds.

In Silicon Valley, the Ripe Scent of New Money - (www.nytimes.com) Sam Odio expected a few congratulatory e-mails when he sold Divvyshot, his online photo-sharing service, to Facebook last April for millions of dollars. Instead, his in-box was flooded with pitches from Goldman Sachs, Morgan Stanley and other Wall Street firms looking to manage his newfound wealth. Goldman has the inside track, having courted him with an exclusive factory tour of Tesla, the electric sports-car maker, and tickets to a screening of the final Harry Potter film. “They sure know the way to a geek’s heart,” said Mr. Odio, 27. Wall Street, as always, is going where the money is — and right now that is Silicon Valley. The latest Internet boom means there are more newly minted millionaires, and even billionaires, than at any time since the technology bubble a decade ago. Many are brilliant young entrepreneurs and computer engineers. But for all their knowledge, the technology executives, many of whom are fresh out of college, are relatively clueless when it comes to estate planning. “Betting the ranch on building a widget for the Facebook platform is very different than managing a long-term nest egg,” said Jay Backstrand, a vice president atJPMorgan Chase’s private bank.

Greek creditors bridle at demands, default fears grow - (www.reuters.com) Greece's private sector creditors warned on Monday that the Athens government must urgently break a deadlock in debt swap talks triggered by "unreasonable" demands from international lenders if is to avoid a disorderly default. Barely a month after an injection of bailout funds helped to avert bankruptcy, Greece is back at the centre of the euro zone crisis as fears of a default and a subsequent euro zone exit overshadow a mass credit downgrade of euro zone countries. Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March.

Monday, January 23, 2012

The Fed's Sleazy Idea Of “Transparency” - (www.implode.com) The Fed announced on the New Year’s Holiday that it is going to start releasing its internal forecasts of short-term interest rates. Advocates of Fed transparency (I am one) might reflexively welcome this prospect. However, even the New York Times article (sourced above) is not so naive. At least, this was apparent when it was originally published, as it said in this version of the article (apparently the copy at that location didn’t get changed — try again, guys!): In January 2012 the Fed board adopted a plan to publish a forecast of its own actions, inaugurating a policy that is intended to magnify the power of those actions by shaping market expectations. The article even opens with a comment about the Fed asserting its power to influence the economy through manipulating interest rates and engaging in quantitative easing (asset purchases). Oddly enough, the replacement version of the same article only uses the word “power” to suggest the Fed is powerless… “to address the most important issues weighing on growth, including a lack of demand from gloomy consumers, high levels of debt throughout the economy and the depressed condition of the housing market”.

Ponzi Planet: The Danger Debt Poses to the Western World - (www.spiegel.de) The most spectacular case was that of New York financier Bernard Madoff, who was responsible for losses of about $20 billion by 2008. Snowballs are set into motion, becoming bigger and bigger as they roll along. In the worst case, they end in an avalanche that takes everything else with it. Western economies have not acted much differently than the fraudster Madoff. In 2011, they were virtually inundated with bad news and old sins. Almost everyone -- in Europe and in the United States -- has been living beyond their means, from consumers to politicians to entire countries. Governments have become servants to the markets upon which they have become dependent.

Bigger Snowballs

On an almost weekly basis, the reports have become more worrisome and the sums of money involved more staggering. Many are now concerned that, as 2012 begins, the snowballs will only get bigger -- and roll faster:

§There are the banks in Europe, which will have to repay about €725 billion in combined debt in 2012, including €280 billion in the first quarter alone. With the private market largely off-limits to them, the banks have had to rely on the European Central Bank (ECB) to bail them out. The ECB is now lending them fresh money -- as much as they want -- at minimal interest rates.

Fed urges entrapment of more Americans with mortgage debt - (www.reuters.com) The Federal Reserve has launched a potentially controversial push to revive the battered U.S. housing market, calling on other government officials to act after largely exhausting its own tools to support the fragile economic recovery. After the Fed slashed interest rates to near zero more than three years ago and amassed $2.3 trillion in bonds to spur growth, the U.S. economy showed some momentum toward the end of 2011. But many analysts are doubtful the recovery will achieve take-off velocity in 2012 and housing is one of the biggest drags. House prices have fallen 33 percent from their 2006 peak, resulting in an estimated $7 trillion in household wealth losses, the Fed said last week as it took the unusual step of making an array of recommendations on housing policy to Congress.

Wall Street's Big Banks Are The Real Threat To Our Economy - (www.foxnews.com) Rebuilding our economy and restoring trust in our government will require a leader with the independence to implement bold reforms that take on the establishment, from Washington to Wall Street. Thus far, however, we are the only campaign willing to confront honestly and directly one of the greatest threats to our long-term economic prosperity: Too-Big-To-Fail Wall Street banks. In 2008, with the nation’s economy in crisis, Washington and Wall Street offered American taxpayers a Sophie’s Choice: spend hundreds of billions of dollars to save big banks from failure, or witness the collapse of our financial system and irreparable economic harm. This was not only a betrayal of the public’s trust; it was also a betrayal of our free market system, which only works when every business plays by the same rules.

As house prices fall, more borrowers walk away - (www.msn.com) When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired. Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call "strategic default." "Guilt and morality are one side, and objective financial analysis are on the other side," Martin said. "They're coming to two opposite conclusions. I wonder how many other people are struggling with the same question." Strategic defaults like the one contemplated by Martin are on the rise. A survey last year by two Chicago-area finance professors, Paola Sapienza at Northwestern University and Luigi Zingales at the University of Chicago, found that roughly three out of 10 mortgage defaults in 2010 were by homeowners who could afford to make their payments, up from 22 percent in 2009.